As With Stocks, Funds Are Subject To Capital Gains Taxes

Finance.

Introduction to mutual fund investing - if you are new to investing, you may have heard of mutual funds but do not know exactly what they are or how to select the right one. It may consist of a mix of several different types of investment vehicles, bonds, such as stocks, or derivatives, or it may consist of nothing but stocks that are part of a certain sector of the economy, or it could be just bonds. A mutual fund is a collective investment security, and there are many different types.

For example, there are mutual funds that consist of nothing but technology stocks. - and some might contain several different types of securities( such as stocks, etc, bonds. ) that all fall within the same risk classification( high - risk, medium - risk, low - risk) . There are also funds that are comprised of stocks that have a similar market capitalization( such as mid - cap funds, large - cap funds, or small - cap funds) . Just like stocks, mutual funds have a price per share, also known as the Net Asset Value( NAV) . As with stocks, the price fluctuates on a daily basis and it can be sold just like any other security. The NAV is calculated by dividing the total value of the fund divided by the number of shares outstanding. When deciding what fund to invest in, you need to consider your investment goals.

You also need to evaluate your risk tolerance. - are you looking for long - term capital appreciation, or would you prefer to receive immediate income from your investment? Are you willing to take a chance on a speculative fund to potentially receive a better return, or is capital preservation a high priority? If you want a mix of investments, then you should look for a balanced fund. If capital preservation is your goal, then you should consider a mutual fund that consists of low risk equities and conservative bond and money market instruments. If you want explosive capital appreciation, then you should consider a high - risk common stock or high - yielding bond fund.

As with stocks, funds are subject to capital gains taxes. - they are different than stocks when it comes to fees and expenses. But a fund is sometimes subject to a front - end and/ or back - end load. If there is a back - end load, the investor must pay a fee when the security is sold. If there is a front - end load, that means that a percentage of the initial investment is automatically deducted to pay for commissions to the fund. Also, there is a 12b - 1 fee that is often deducted to pay for advertising expenses incurred for the marketing of the fund to the public.

Investors might be unaware of the 12b - 1 fee because it is sometimes deducted from the share price, so in a way, it is an invisible fee. - sometimes there is no 12b - 1 fee, it depends. I hope this introduction to mutual funds will help you make some decisions regarding your investments. Talk to your broker and see if he or she can help you identify the best investment vehicle for you. There are literally thousands of different funds available, and brokerage houses often have their own set of funds that they create for sale to their customers. Just make sure you review the fee structure of the mutual fund you are interested in before you invest.